Kinder Morgan secures U.S. presidential permit to transport diluent

A subsidiary of Houston-based Kinder Morgan Inc. secured a highly coveted presidential permit from the U.S. State Department Thursday, clearing the way to transport bitumen-thinning diluent to Alberta’s oil sands.

The decision allows Kinder Morgan Cochin LLC to proceed with a US$260-million plan to reverse and expand an existing pipeline to carry an initial 95,000 barrels a day of condensate from the Chicago area to Fort Saskatchewan, Alta. Condensate is ultra-light oil used by oil sands companies to make tar-like bitumen flow in pipelines.

The approval comes with much larger cross-border pipelines proposed by TransCanada Corp. and Enbridge Inc. still under review by the State Department. TransCanada’s $5.4-billion Keystone XL project has languished for more than five years and become a lightning rod for environmentalists opposed to oil sands development. Enbridge, for its part, is awaiting a decision on a 350,000-barrel expansion to its existing Alberta Clipper pipeline.

Thursday’s verdict potentially muddies the case against the large oil sands conduits, which environmentalists oppose on grounds that they will facilitate increased bitumen production and exacerbate greenhouse gas emissions.

“While we are hesitant to conclude the Cochin approval bodes well for Keystone XL and Alberta Clipper, we find the approval interesting as it is for a pipeline that will move a product that should facilitate oil sands growth,” RBC Capital Markets analyst Robert Kwan said Thursday in a note.

Demand for condensate in Alberta is poised to skyrocket as output from the province’s bitumen deposits tilts away from strip mines toward steam-driven extraction.

The extra-thick oil is typically cut with 30% condensate so it can move in pipelines. By 2035, producers could require 893,000 barrels a day of the ultra-light oil, with imports making up 786,000 barrels of the total, National Energy Board data show.